Natera, Inc. (NASDAQ:NTRA) is a diagnostics company with proprietary molecular and bioinformatics technology that it is applying to change the management of disease worldwide. The company's cell-free DNA (cfDNA) technology combines its novel molecular assays with statistical algorithms to identify genetic variations covering a wide range of serious conditions with high accuracy and coverage. Natera focuses on applying its technology to three main areas of healthcare – women's health, oncology and organ health.

Business Overview

In the women's health space, the company develops and commercializes non- or minimally-invasive tests to evaluate risk for, and enable early detection of, a wide range of genetic conditions, such as Down syndrome. In oncology, the company commercializes a personalized blood-based DNA test to detect molecular residual disease and monitor for disease recurrence across a broad range of cancer types. Natera's third area of focus is organ health, with tests to assess kidney, heart, and lung transplant rejection as well as genetic testing for chronic kidney disease.

Natera operates laboratories in Austin, Texas and San Carlos, California certified under the Clinical Laboratory Improvement Amendments of 1988 (CLIA), providing a host of cell-free DNA-based molecular testing services. The company's key product offerings include its Panorama Non-Invasive Prenatal Test (Panorama), Horizon Carrier Screening (Horizon), its Signatera molecular residual disease test (Signatera), and its Prospera test to assess organ transplant rejection.

Financials

For the full year 2023, Natera reported annual revenue of $1,082,571,000 and a net loss of $434,801,000. The company's annual operating cash flow was -$246,955,000 and annual free cash flow was -$286,154,000.

In the first quarter of 2024, Natera reported total revenues of $367,741,000, up 52.1% compared to the first quarter of 2023. Product revenues accounted for $364,672,000, or 99% of total revenues, an increase of 53.4% year-over-year. Licensing and other revenues were $3,069,000, down 22.5% year-over-year.

The company's strong revenue growth was driven by a 17% sequential increase in test volumes compared to the fourth quarter of 2023, representing the fastest sequential growth rate since 2021. Oncology volumes grew by 17,000 units sequentially, a record growth quarter for the company. Women's Health also saw a particularly strong performance, up more than 85,000 units sequentially versus the fourth quarter of 2023.

Natera's improving average selling prices (ASPs) and continued execution on cost reduction drove a record gross margin of 57% in the first quarter of 2024, compared to 39% in the first quarter of 2023. The company's ability to increase ASPs and improve operational efficiency has been a key driver of its financial performance.

Outlook

Looking ahead, Natera has raised its full-year 2024 revenue guidance to $1.42 billion to $1.45 billion, up from the previous range of $1.32 billion to $1.35 billion. The company has also increased its gross margin guidance from 50-53% to 53-55%. Importantly, Natera now expects to be cash flow breakeven for the full year 2024, plus or minus $25 million, a significant improvement from its previous guidance of a cash burn of $75 million to $50 million.

The company's strong performance in the first quarter and improved outlook for the full year 2024 are a testament to its ability to drive volume growth, expand ASPs, and improve operational efficiency. Natera's diversified product portfolio, with leading positions in women's health, oncology, and organ health, positions the company well for continued success.

Recent Developments

In women's health, Natera recently launched its fetal RhD test, which can be performed alongside Panorama as early as 9 weeks gestation. This test addresses a critical unmet need in the market, as OB/GYNs are currently facing limited supplies of medication traditionally given to RhD negative women to prevent potential complications during pregnancy. Natera's fetal RhD test is backed by a large validation study and is expected to be a key differentiator for the company.

In organ health, Natera's Renasight test received a significant boost from the updated KDIGO (Kidney Disease: Improving Global Outcomes) guidelines, which now include a specific section on the use of genetic testing in chronic kidney disease (CKD). The guidelines recommend genetic testing, such as Renasight, to establish the cause of CKD and inform clinical management. This guideline update is expected to have a positive impact on the adoption of Renasight testing.

Additionally, Natera published the first major readout from its ProActive trial, the largest prospective donor-derived cell-free DNA study in kidney transplantation. The data demonstrated that Prospera, Natera's test for assessing organ transplant rejection, is a leading indicator of rejection, with the ability to detect rejections up to 5 months prior to antibody-mediated rejection and up to 2 months prior to T cell-mediated rejection.

In oncology, Natera continues to generate a steady stream of clinical data supporting the use of its Signatera test. The company recently announced positive results from the IMvigor011 trial in bladder cancer, where patients who remained Signatera-negative after surgery had excellent outcomes, suggesting they may be able to forgo adjuvant therapy and instead undergo Signatera-guided surveillance. This data, along with the upcoming readout from the ALTAIR trial in colorectal cancer, are expected to be key catalysts for Signatera's adoption.

Conclusion

Natera's strong financial performance, diversified product portfolio, and robust clinical data generation position the company as a leader in the diagnostics industry. The company's focus on driving volume growth, expanding ASPs, and improving operational efficiency has been a winning formula, as evidenced by its cash flow breakeven milestone achieved significantly ahead of schedule.

As Natera continues to execute on its strategy and capitalize on the significant opportunities in women's health, oncology, and organ health, the company is well-positioned to deliver sustained growth and value for its shareholders.